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Guarantees

Bank guarantee is a separate transaction in addition to the main external trade contract between seller and buyer by virtue of which the Bank (Guarantor) by the request of exporter or importer (Principal) gives a written liability to pay to Beneficiary a certain amount of money accordingly to his written request by observing certain conditions by him.

Bank guarantee is not a settlement tool and used for guaranteeing the main contract liability of a principal (exporter or importer). Operations on delivering international bank guarantees comply with”The Uniform rules for demand guarantees“developed by the International Chamber of Commerce.

The main types of bank guarantees in international practice are

  • Payment Guarantee issued on behalf of the Importer

A guarantee of implementing settlement liabilities by buyer provided in the contract is based on settlement conditions of the contract and covers risk of non-payment (payment not in time) from buyer’s side.

  • Advance Payment Guarantee issued on behalf of the Exporter

A guarantee of return of advance earlier paid accordingly to the contract in case of non-delivery of goods/non-implementing the work by seller. The guarantee comes into the force as advance is received to the account of seller in the bank-guarantor. The amount of guarantees decreases as seller fulfills contract liabilities paid in advance.

  • Bid Bond Guarantee issued by on behalf of Exporter.

Guarantee enforcement tender obligations of the tenderer to customer / contractor, lies in the fact that the tenderer:

  1. Not withdraws its bid during the period of consideration of bids;
  2. In case of win the tender, will sign the contract with customer / contractor and present him guarantee of proper execution of the contract.

The amount of Bid Bond Guarantee is usually equaled to 5% of the total estimated amount of the contract.

  • Guarantee of the proper performance of the contract (Performance Guarantee), issued on behalf of Exporter.

Guarantee of qualified performance by seller of contractual conditions. Amount of guarantee is usually equaled to 10% of the total amount of the contract, and may decrease as works have performed.

A separate type of guarantee, ie means of ensuring fulfillment of the obligations fixed in the contract is

Standby Letter of Credit (Stand-By Letter of Credit), both issued on behalf of the importer and on behalf of the exporter.

The shape of the standby letter of credit corresponds to the usual documentary credit, the content is the same guarantees of performance of the principal obligation (payment, advance and so on. D.). The bank makes a payment under a standby letter of credit, if one of the parties fails to fulfill its obligations under the main contract.- will sign contract with customer/contractor by winning the bid bond and give him guarantee of proper implementing of contract. 
The sum of bid bond guarantee makes as a rule up to 5% of the total sum of putative contract.

  • Performance Guarantee given by Exporter.

Guarantee of qualitative performance of contract conditions by seller. Its sum usually makes up 10% of the total sum of contract and can decrease as works are performed.

Special type of guarantee, ie means of ensuring fulfillment of the obligations fixed in the contract is

  • Standby Letter of Credit (Stand-By Letter of Credit), both issued on behalf of  Importer and Exporter.

The shape of the stand-by letter of credit corresponds to common documentary letter of credit, but the content is a guarantee of performance of the principal liability (payment, advance and so on). The Bank performs a payment under a stand-by letter of credit, if one of the parties fails to fulfill its obligations under the main contract.

Please follow the link to see tariffs on guarantees.